Asset Protection Trusts For Adult Children

COVID-19 lawsuits are filling the courthouses.  This comes after a long line of other lawsuits over home sales, the ADA, employment law, car accidents, unpaid bills, and let’s not forget divorce.  To protect adult children from losing generations of wealth, parents are leaving their inheritance to their children, in trust, with the adult child in charge of their asset protection trust.

As a general rule, an individual cannot place their own assets in a domestic asset protection trust and tell their creditors to take a hike.  However, assets gifted to an individual in trust can be protected from lawsuits and creditors.

With the federal estate tax exemption exceeding 11 million dollars, the need for tax planning trusts has waned.  A tax planning trust is an asset protection trust.  Along with protection from federal estate taxes for multiple generations, there is protection from lawsuits and creditors.  The adult child can be named the person in charge of the trust.  Distributions from the asset protection trust can be made for typical living expenses.  Most creditors cannot force a distribution even if the creditor has a judgment.

Domestic asset protection trusts provide pretty good protection from the average creditor.  There is some expense.  A good CPA is a wise investment.  There is an annual tax return.  Care must be exercised to avoid income taxation at trust tax rates.  All-in-all, the investment in an asset protection trust is worth the investment.